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Big VC Comes to China; Where's Wireless?
2005-8-8 9:06:51
There is sure to be plenty of investors looking for the next China IPO in the wake of

By Paul Waide

Related Story: Baidu Shares Quadruple in Debut
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There is sure to be plenty of investors looking for the next China IPO in the wake of Inc.'s blockbuster $2.5 billion debut Friday on the Nasdaq, and there are a slew of companies ready to take their money.

Recently listed Focus Media will face the market for the first time since its July IPO this week and investors will be expecting big things from Shanda Interactive Entertainment Ltd. when it announces second-quarter results on Tuesday, after blew away expectations last week.

Big VC in China Inc. had a surprise for the market when it announced second- quarter results last week. Ctrip Chief Financial Officer Neil Shen is resigning his position in favor of marquee venture capital firm Sequoia Capital. Shen's Sequoia appointment trumpets the entry of Silicon Valley's top tier venture capital firms into China.

A Sequoia competitor and Sand Hill Road neighbor, Draper Fisher Jurvetson, has lost its lead man on the ground in China. Zhang Fan, who was the China vice president at Draper Fisher Jurvetson's ePlanet Fund, has left the company. Zhang was credited with DFJ's investments in Baidu, KongZhong Corp. and Focus Media.

Granite Global Ventures and Bessemer Venture Partners are among the U.S. venture capitalists that have recently established an on-the- ground presence in China. While the likes of New Enterprise Associates, Kleiner Perkins Caufield & Byers and Accel Partners don't have people on the ground in China, all have had principals in China over the past few months.

The entry of so many foreign venture capital firms appears to fly in the face of notes issued by China's State Administration of Foreign Exchange that make it extremely difficult for foreign funds to invest in Chinese companies owned by Chinese nationals.

Where's Wireless?

While Inc. impressed investors with 27% quarter-on-quarter revenue growth and Sina Corp. kept its investors more than happy with in-line growth, wireless value-added services don't look like the revenue driver many thought it would be at the portals. Inc.'s wireless revenue might get a boost in the third quarter now that China Mobile is permitting the portal to offer MMS services. However, Tom Online Inc.'s second-quarter results will be the most telling for China's wireless value-added services industry. WVAS accounted for 95% of Tom Online's first-quarter revenues, so it should give a good indication of whether the industry is in a slump or the other portals are simply focusing efforts on other business lines.

Pure-play wireless value added services companies Hurray Holding Co., KongZhong and Linktone Ltd. are set to announce second-quarter results Aug. 15, 16 and 18, respectively.

Focus Media Holdings faces its first earnings call Monday. Not much has changed since it went public in mid-July, but this will be the first time investors get to see whether the company can deliver. Investors will also be able to see whether Focus Media's in-store network of liquid crystal display screens has been a success with advertisers. The in-store network, launched in April, covers Focus screens placed in retailers across China.

Shanda Interactive Entertainment will announce second quarter results on Tuesday. Shanda should face questions on its plans for a 19.5% stake in portal Sina, on the progress of its set-top box, and the rationale behind licensing Gravity Interactive's Ragnarok Online, a game that competes with Shanda's own Magical Land.

Next For Nasdaq

On the heels of Baidu, whose offer price more than quadrupled in Wall Street's biggest IPO splash in five years last week, there are a slew of Chinese companies lining up for U.S. market listings later in the year.

Carlyle Group investee Target Media is at the top of the list. Target competes directly with Focus Media. However, Focus Media has a large number of franchised screens where Target owns all of its screens.

After 51Jobs Inc. got through its second-quarter results without too much drama (the company dropped 28% after its first- quarter results) attention should swing back to the job site's competitors. is the only independent of any size to keep an eye on. took investment from Monster Worldwide Inc. in 2004.

Security software developer Watchdata Technologies Ltd. filed to list earlier in the year but never got out of the gate. Telecom equipment vendor Harbour Networks is in a similar situation, having prepared for a Hong Kong listing in 2004. Both companies are still IPO prospects.

Finance portal, which competes with China Finance Online, is an IPO candidate, as is real estate portal Soufun, which recently received an injection of cash from France's Trader Classified Media.

(Source: MarketWatch/Photo: Baidu, AFP)

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